Wealthy Sweden spending too little: policy adviser

STOCKHOLM (Reuters) - Sweden's centre-right coalition government is being too tight-fisted with public finances that are likely to remain strong for years to come, a think tank charged with evaluating policy said on Monday.

The Swedish Fiscal Policy Council, a state agency that evaluates government policy, said it saw little risk the country would breach spending ceiling rules in the coming years and instead urged the government to slacken spending constraints.

Unlike most countries in Europe, strong export revenues and firm domestic demand have helped Sweden rapidly shrink its debt as a percentage of gross domestic product (GDP) over the past decade, leading to rising net wealth for the public sector.

"Sweden is becoming an oil country, only without the oil," Council Chairman Lars Jonung told a news conference.

While relentless austerity measures are driving debt-laden countries in the euro zone into recession, the government forecasts Swedish public debt to fall to 37.7 percent of GDP this year and a mere 22.5 percent in 2016.

Many economists expect official data on Tuesday to show the euro zone as a whole entered its second recession in just three years at the end of March, adding to pressure on the bloc's leaders to moderate austerity with measures to stimulate growth.

Sweden has remained outside the euro zone after failing to get a public mandate to give up its crown currency.

The Swedish council said the policy conducted by Finance Minister Anders Borg tended to entail extra safety margins in terms of public spending compared with what was required under law, especially in times of economic uncertainty.

The slowdown as the euro sovereign debt crisis worsened during the second half of last year would thus have warranted a more expansive policy by a government that has made keeping a role as guardian of public finances its top priority, it said.

"One should have been a bit more generous," council member John Hassler said.

EUROPE ON KNIFE'S EDGE

Borg defended his position, saying the debt crisis had led to a rapid worsening of Sweden's public sector finances.

"In a normal situation extra safety margins beyond what is required in fiscal policy framework are not needed. But what we have experienced lately can hardly be described as a normal situation," he said in a statement.

"Europe is balancing on a knife's edge and the uncertainty remains great."

The government has come under fire over the past year for not investing a larger slice of the country's rising wealth in measures to bolster long-term growth prospects.

The minority government status of Prime Minister Fredrik Reinfeldt's cabinet has acted as an obstacle in this respect and opinion polls in recent months have shown an erosion of support for the four-party coalition.

The council said the government's propensity for keeping an extra safety margin also ran the risk of fiscal policy dampening the economy during a slowdown while stoking it in an upturn.

"A routine use of extra safety margins risks on the one hand creating a pro-cyclical element in fiscal policy, and in addition making the average financial savings larger than set out by the surplus target."